Trouble hiring? Try paying more

Pop-quiz time. Which of the following explains the inability of employers to fill open positions:

n A lack of qualified workers?

n Low pay?

n Welfare state/transfer payments that make work unappealing?

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I’ll try to answer that based on my own (admittedly anecdotal and limited) experience.

A few years ago, I was trying to fill an opening in our New York office. I offered what I thought was a competitive salary for a junior position, including good benefits. No one seemed to fit the bill.

I mentioned this to a friend who had a lot more hiring experience. I showed him all the details: Fast-growing company, exciting work environment, lots of perks (window office, unlimited coffee). When it came to pay, he laughed at me. “You are trying to hire someone in a high-paying industry in the most competitive and expensive city in the country for that job,” he said. “Try raising your offer.”

We did, by 50 percent. Suddenly, we had lots of qualified applicants.

I was thinking about this as I read a recent survey of small-business owners:

Fifty-three percent reported hiring or trying to hire (down 3 points), but 46 percent reported few or no qualified applicants for the positions they were trying to fill. Fourteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem. This issue ranks third out of nine major issues listed. Twenty-six percent of all owners reported job openings they could not fill in the current period.

Ed Yardeni recently observed that “August’s consumer-confidence survey found the percentage of respondents who said that jobs are plentiful rose to 26 percent, the highest since August 2007. The percentage saying that jobs are hard to get was 23.4 percent, near recent cyclical lows.”

All of which raises an interesting question about why there are few signs of pay increases so far.

I have a simple theory about this: Employers are both wary and a little bit spoiled. They are wary because they don’t know how long low interest rates will hold down the cost of capital; many businesses have been prudently running lean, keeping expenses and overhead in check. It isn’t a surprise that we still see lingering signs of post-credit-crisis stress.

They are also a little spoiled, because so many workers were desperate for jobs for so long and weren’t in a position to bargain for higher pay. That period seems to be ending. The low ratio of job seekers to openings suggests that if employers want to hire – and keep their existing employees – they might have to increase wages sooner rather than later.

For the economy as a whole, this is a potentially positive development. •

Barry Ritholtz is a Bloomberg View columnist.

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